LANDER UNIVERSITY REPORT ON FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2003

Transcription

1 LANDER UNIVERSITY REPORT ON FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2003

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3 LANDER UNIVERSITY GREENWOOD, SOUTH CAROLINA CONTENTS REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 2-3 MANAGEMENT S DISCUSSION AND ANALYSIS 4-8 BASIC FINANCIAL STATEMENTS Statement of net assets 9 Statement of revenues, expenses and changes in net assets 10 Statement of cash flows 11 Notes to financial statements REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS 25 REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 28 SCHEDULE OF FINDINGS AND QUESTIONED COSTS 29 SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS 30 Page

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6 LANDER UNIVERSITY Management s Discussion and Analy sis Overview of the Financial Statements and Financial Analysis Lander University is pleased to present its financial statements for fiscal year Condensed statements for fiscal years 2002 and 2003 will be presented in this section for comparative purposes. However, the emphasis of discussions about these statements will be on current year data. While maintaining its financial health is crucial to the long-term viability of the University, the primary mission of a public institution of higher education is to provide education, research, and public service. Therefore, net assets are accumulated only as required to ensure that there are sufficient reserve funds for future operations. This report consists of a series of financial statements, prepared in accordance with the Governmental Accounting Standards Board (GASB) in Statement No.34, Basic Financial Statements-and Management s Discussion and Analysis-for State and Local Governments and Statement No. 35, Basic Financial Statements - and Management s Discussion and Analysis - for Colleges and Universities. These statements focus on the financial condition of the University, the results of operations, and cash flows of the University as a whole. There are three financial statements presented: the Statement of Net Assets; the Statement of Revenues, Expenses, and Changes in Net Assets; and, the Statement of Cash Flows. These statements present financial information in a format similar to that used by private corporations. The University s net assets (the difference between assets and liabilities) are one indicator of the improvement or erosion of the University s financial health when considered with non-financial facts such as enrollment levels and the condition of the facilities. This discussion and analysis of the University s financial statements provides an overview of its financial activities for the year. Statement of Net Assets The Statement of Net Assets presents the assets, liabilities, and net assets of the University as of the end of the fiscal year. The purpose of the Statement of Net Assets is to present a fiscal snapshot of Lander University. The Statement of Net Assets presents end-of-year data concerning assets (property owned by the University and debts owed by others to the University), liabilities (debts owed to others and funds collected from others prior to the University providing service/goods), and net assets (assets minus liabilities). It is prepared under the accrual basis of accounting, whereby revenues and assets are recognized when the service is provided and expenses and liabilities are recognized when others provide the service to us, regardless of when cash is exchanged. The Statement of Net Assets provides data that identifies the assets available to continue the operations of the University as well as how much the University owes vendors, investors, and lending institutions. Finally, the Statement of Net Assets provides a picture of the net assets (assets minus liabilities) and their availability for expenditure by the institution. Net assets are divided into three major categories. The first category, invested in capital assets, net of debt, provides the institution s equity in property, plant, and equipment owned by the institution. The next asset category is expendable restricted net assets. Expendable restricted net assets are available for expenditure by the institution but must be spent for purposes as determined by donors and/or external entities that have placed time or purpose restrictions on the use of the assets. The final category is unrestricted net assets. Unrestricted assets are available to the institution for any lawful purpose of the institution. Although unrestricted net assets are not subject to externally imposed stipulations, substantially all of the University s unrestricted net assets have been designated for various academic programs and initiatives. -4-

7 Condensed Summary of Net Assets Increase/ Percent Assets: Decrease Change Current assets 10,834,285 9,107,229 1,727, % Capital assets, net 34,822,553 35,473, , % Other assets 2,111,992 1,866, , % Total Assets 47,768,830 46,447,909 1,320, % Liabilities: Current Liabilities 1,873,391 1,689, , % Noncurrent Liabilities 3,512,358 3,741, , % Total Liabilities 5,385,749 5,430,404-44, % Net Assets: Invested in capital assets, net of debt 32,987,553 33,473, , % Restricted-expendable 1,536, ,318 1,169, % Unrestricted 7,858,736 7,176, , % Total Net Assets 42,383,081 41,017,505 1,365, % Lander University Asset Analysis 60,000,000 50,000,000 40,000,000 30,000,000 20,000, ,000,000 0 Current Assets Capital Assets, net Other Assets Total Assets The total assets of the University increased by approximately $1.3 million. This increase was primarily due to increases in cash and receivables. Capital assets decreased due to depreciation and elimination of assets no longer in service. Statement of Revenues, Expenses and Changes in Net Assets The Statement of Revenues, Expenses and Changes in Net Assets presents the revenues earned and expenses incurred during the year as either operating or non-operating activities. All things being equal, a public University s dependency on state aid and gifts will result in operating deficits. The GASB requires state appropriations and gifts to be classified as non-operating revenues. The utilization of long-lived assets, referred to as capital assets, is reflected in the financial statements as depreciation, which amortizes the cost of an asset over its expected useful life. Changes in total net assets as presented on the Statement of Net Assets are based on the activity presented in the Statement of Revenues, Expenses, and Changes in Net Assets. The purpose of the statement is to present the revenues received by the institution, both operating and non-operating, and the expenses paid by the institution, operating and non-operating, and any other revenues, expenses, gains and losses received or spent by the institution. -5-

8 Generally speaking, operating revenues are received for providing goods and services to the various customers and constituencies of the institution. Operating expenses are those expenses paid to acquire or produce the goods and services provided in return for the operating revenues, and to carry out the mission of the institution. Non-operating revenues are revenues received for which goods and services are not provided. Condensed Summary of Revenues, Expenses and Changes in Net Assets Increase/ Percent (Decrease) Change Operating Revenues: Student tuition and fees 7,271,322 7,304,731-33, % Sales and services 5,967,010 5,352, , % Grants and contracts 6,701,403 4,323,407 2,377, % Other operating revenues 694, , , % Total operating revenues 20,634,001 17,509,734 3,124, % Operating Expenses: Compensation and Benefits 19,783,943 18,431,649 1,352, % Supplies and Services 8,032,203 6,775,042 1,257, % Scholarships and Fellowships 2,239,190 1,464, , % Depreciation 1,575,219 1,611,894-36, % Total operating expenses 31,630,555 28,282,944 3,347, % Operating loss -10,996,554-10,773, , % Nonoperating Revenues (Expenses): State Appropriations 10,201,912 11,497,926-1,296, % State Grants and Contracts 681,216 11, , % Gifts 874, ,123 3, % Investment income 537, , , % Gain on disposal of assets 3,995-4,090 8, % Interest expense -77, ,023 85, % Total nonoperating revenues (expenses) 12,222,624 12,543, , % Income before other revenues, expenses, gains, losses 1,226,070 1,770, , % Other Revenues: Capital Improvement Bonds 139, , , % Change in Net Assets 1,365,576 2,174, , % Net Assets, Beginning of Year 41,017,505 38,843,036 2,174, % Net Assets, End of Year 42,383,081 41,017,505 1,365, % Lander University Revenue Analysis 14,000,000 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000, Student tuition and fees Sales and services Grants and contracts Other operating revenues State Appropriations Gifts -6-

9 Lander University Expense Analysis 25,000,000 20,000,000 15,000,000 10,000,000 5,000, Compensation and Benefits Supplies and Services Scholarships and Fellowships Depreciation The Condensed Summary of Revenues, Expenses and Changes in Net Assets reflect a positive year with an increase in Net Assets at the end of the year. Some highlights of the information presented in this Summary follow. An interesting occurrence is that even though tuition increases in fiscal year 2003 were slightly more than 13% and enrollment was up approximately 9%, tuition and fee revenue decreased. This happened because of accounting and reporting for scholarship allowances. A scholarship allowance is defined as the difference between the stated charge for goods and services provided by the institution and the amount that is billed to the student and/or third parties making payments on behalf of the student. The reduction of published student fees below the published rate either by governmental mandate or a separately negotiated contract rate is not considered a scholarship allowance. Scholarship allowances increase when grants/scholarships to students increase. For example, Need Based, Palmetto Fellows, Life and Hope increased more than $2 million in fiscal year Students use these funds to pay tuition and fees, but the revenue is recorded in Grants and Contracts. Also there were increases in the Pell Grant and SEOG programs which occurred because of the corresponding increases in tuition and fees. In addition, in the 2003 federal budget, there was a small increase in the maximum Pell Grant awarded per student. During fiscal year 2003, the University (along with all State agencies) had three budget cuts totaling $951,435. State Appropriations in fiscal year 2003 were $1,296,014 less than in fiscal year In the last three years, Lander s budget cuts equal $3,039,745. In 2003, Lander laid off 13 people effecting a savings of $338,562 in salaries and fringes. Also some vacant positions will not be filled. The much-anticipated institutional software has been selected with SCT being the winning vendor. The total cost of this project is approximately $2.6 million that includes hardware, software, training, implementation, and maintenance. Approximately $750,000 will be financed. Payments for the financed portion of this project have been built into the current budget. Representatives of SCT have begun analyzing needs and setting timetables for phased in installation to be completed in New projects for the year included the completion of the initial phases of the relocation of the Physical Plant; expanding Food Service options with the completion of the Food Court in the Grier Student Center, and the refurbishing of Chipley Hall with a new HVAC system as well as various upgrades such as new furniture, new carpet in the halls, lobby floor refinished, paint, medicine cabinets, and reglazing of the bathtubs. -7-

10 During the December, 2002 board meeting, the Board of Trustees approved the University s Strategic Plan. The Plan s 5 major goals are: Goal 1. Increase student learning Goal 2. Increase the student population by 20% through recruiting, and retaining highly motivated, diverse students, faculty, and staff Goal 3. Enhance links with constituents Goal 4. Improve the learning and living environment of the University Goal 5. Assure the long-term stability of the University These five goals were designed to guide all aspects of the University including instruction and allocation of resources. Statement of Cash Flows The final statement presented is the Statement of Cash Flows which presents detailed information about the cash activity of the institution during the year. The statement is divided into five parts. The first part deals with operating cash flows and shows the net cash used by the operating activities of the institution. The second section reflects cash flows from non-capital financing activities. This section reflects the cash received and spent for non-operating, non-investing, and non-capital financing purposes. The third section deals with cash flows from capital and related financing activities and with the cash used for the acquisition and construction of capital and related items. The fourth section reflects the cash flows from investing activities and shows the purchases, proceeds, and interest received from investing activities. The fifth section reconciles the net cash used to the operating income or loss reflected on the Statement of Revenues, Expenses, and Changes in Net Assets. Economic Outlook The University is not aware of any facts, decisions, or conditions that are expected to have a significant effect on the financial position or results of operations during fiscal year Lander is currently in the process of securing necessary funding for the construction of a new housing facility on land owned by Lander University. The new facility will house a maximum of 330 students. A location has been identified with sufficient area to provide the footprint for a three-story structure and the associated parking requirements. This new facility will replace approximately 150 beds of leased housing at the Greenwood High Apartments and roughly 120 beds in Coleman Hall. Upon completion of this project, Coleman Hall will be sold. The additional beds will be needed to provide adequate facilities for future growth. Recent research indicates this facility can be built for approximately $35,000 per bed. Another major project for 2004 will involve the construction of a new entrance to the Lander University campus from Calhoun Avenue. This project will replace the existing residential street (Crews) that is the primary access to Lander. The new Boulevard will be built through an existing gravel parking lot and other property already owned by the University. The project will include the construction of the road with curbs, sidewalks, landscaping, lighting, a small fountain, and 230 paved spaces for general and visitor parking. Utilities will be relocated as required. The existing street will be demolished and the area landscaped. The cost of this project is estimated to be $500,000 with funding planned to come from unrestricted net assets. The relocation of the Physical Plant facilities to the back portion of the campus will continue. The plan allocates $625,000 for the construction of new facilities. Funding for this project has also been earmarked from unrestricted net assets. On August 20, 2003, the Budget and Control Board approved a 1% across-the-board general fund sequestration from all state agencies totaling $42.3 million. Lander s share is approximately $92,000. More cuts are expected. Even with a relatively flat funded year in 2003, the University was able to generate an increase in Net Assets. The University anticipates fiscal year 2004 will not be substantially different from the last. Tuition increases for fiscal year 2004 are 14.8%, which should give the University the resources to maintain its ability to react to unknown internal and external issues. -8-

11 LANDER UNIVERSITY STATEMENT OF NET ASSETS JUNE 30, 2003 ASSETS CURRENT ASSETS Cash and cash equivalents $ 9,999,493 Accounts receivable - Net 511,059 Due from others 1,402 Inventories 212,173 Prepaid expenses 110,158 Total current assets 10,834,285 NONCURRENT ASSETS Cash and cash equivalents 355,040 Restricted cash and cash equivalents 195,518 Interest receivable 154,498 Restricted student loans receivable 1,406,936 Capital assets - Net 34,822,553 Total noncurrent assets 36,934,545 Total assets $ 47,768,830 LIABILITIES CURRENT LIABILITIES Accounts payable $ 230,373 Accrued payroll and related liabilities 308,787 Accrued interest payable 14,374 Long-term liabilities - Current 876,790 Deposits held for others 5,789 Other deposits 21,483 Deferred revenues 415,795 Total current liabilities 1,873,391 NONCURRENT LIABILITIES Revenue bonds 1,665,000 Accrued compensated absences 351,134 Student deposits 64,861 Perkins Loan Program - Federal liability 1,431,363 Total noncurrent liabilities 3,512,358 Total liabilities $ 5,385,749 NET ASSETS Invested in capital assets, net of related debt $ 32,987,553 Restricted for: Expendable: Instructional department 427,065 Loans 224,865 Debt service 884,862 Unrestricted 7,858,736 Total net assets $ 42,383,081 The accompanying notes are an integral part of these financial statements. -9-

12 LANDER UNIVERSITY STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS For the year ended June 30, 2003 REVENUES Operating revenues Student tuition and fees (net of scholarship allowances of $5,764,490) $ 7,271,322 Federal grants and contracts 2,855,601 State grants and contracts 3,837,091 Nongovernmental grants and contracts 8,711 Sales and services of educational and other activities 541,037 Auxiliary enterprises (pledged as security for revenue bonds) Housing 2,722,948 Bookstore (Net of scholarship allowances of $476) 1,611,443 Vending 21,112 Food service 1,513,529 Health services 97,978 Other fees 140,614 Other operating revenues 12,615 Total operating revenues 20,634,001 EXPENSES Operating expenses Compensation and benefits 19,783,943 Supplies and services 8,032,203 Scholarships and fellowships 2,239,190 Depreciation and amortization 1,575,219 Total operating expenses 31,630,555 Operating loss (10,996,554) NONOPERATING REVENUES (EXPENSES) State appropriations 10,201,912 State grants and contracts 681,216 Private gifts 874,578 Investment income 537,963 Net gain on disposal of assets 3,995 Interest on capital assets-related debt (77,040) Net nonoperating revenues 12,222,624 Income before other revenues, expenses, gains, or losses 1,226,070 Capital improvement bond proceeds 139,506 Total other revenues 139,506 Increase in net assets 1,365,576 NET ASSETS, BEGINNING OF YEAR 41,017,505 NET ASSETS, END OF YEAR $ 42,383,081 The accompanying notes are an integral part of these financial statements. -10-

13 LANDER UNIVERSITY STATEMENT OF CASH FLOWS For the year ended June 30, 2003 CASH FLOWS FROM OPERATING ACTIVITIES Student tuition and fees $ 7,358,394 Federal grants and contracts 2,855,330 State grants and contracts 3,837,091 Nongovernmental grants and contracts 8,711 Sales and services of educational and other activities 541,038 Auxiliary enterprises 5,946,475 Other fees 140,614 Other operating revenues 12,615 Payments to suppliers (10,117,830) Payments to employees (19,818,986) New loans to students (232,251) Collection of loans 156,010 Net cash used for operating activities (9,312,789) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES State appropriations 10,201,912 State grants and contracts 681,216 Private gifts 818,990 Net cash provided by noncapital financing activities 11,702,118 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Proceeds from capital improvement bonds 129,059 Purchases of capital assets (923,936) Proceeds from sale of equipment 3,995 Principal paid on debt obligations (165,000) Interest paid (94,000) Net cash used for capital and related financing (1,049,882) CASH FLOWS FROM INVESTING ACTIVITIES Interest on investments 511,781 Net cash provided by investing activities 511,781 Net increase in cash and cash equivalents 1,851,228 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 8,698,823 CASH AND CASH EQUIVALENTS, END OF YEAR (including $195,518 restricted cash and cash equivalents) $ 10,550,051 RECONCILIATION Operating loss $ (10,996,554) Adjustments to reconcile operating loss to net cash used for operating activities Depreciation and amortization 1,575,219 Allowance for uncollectible accounts (3,372) Changes in assets and liabilities: Receivables 7,191 Inventories (4,803) Prepaid expenses (32,754) Student loans receivable (4,757) Due to/from others (19,743) Payables 141,971 Deferred revenues 82,983 Deposits (20,534) Compensated absences (37,636) Cash flows used for operating activities $ (9,312,789) The accompanying notes are an integral part of these financial statements. -11-

14 LANDER UNIVERSITY NOTES TO FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations Lander University (the University) is a State-supported, coeducational institution of higher education. Lander University s commitment to extending educational opportunities to an array of varying constituencies reflects its belief that citizens of a free society have a right to the enriching benefits of a higher education. Reporting entity As defined by Governmental Accounting Standards Board (GASB) Statement No. 14, The Financial Reporting Entity, the University is not financially accountable for any other entity, nor are there any other entities for which the nature and significance of their relationship with the primary government are such that exclusion could cause the financial statements to be misleading or incomplete. The University is part of the primary government of the State of South Carolina. Financial Statements The financial statement presentation for the University meets requirements of GASB Statement No. 34, Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments, and GASB Statement No. 35, Basic Financial Statements and Management s Discussion and Analysis for Public Colleges and Universities. The financial statement presentation provides a comprehensive, entity-wide perspective of the University s net assets, revenues, expenses and changes in net assets and cash flows. Basis of accounting For financial reporting purposes, the University is considered a special-purpose government engaged only in business-type activities. Accordingly, the University s financial statements have been presented using the economic resources measurement focus and the accrual basis of accounting. Under the accrual basis, revenues are recognized when earned, and expenses are recorded when an obligation has been incurred. Student tuition and auxiliary enterprise fees are presented net of scholarships and fellowships applied to student accounts, while stipends and other payments made directly are presented as scholarship and fellowship expenses. All significant intra-agency transactions have been eliminated. The University has elected not to apply Financial Accounting Standards Board (FASB) pronouncements issued after November 30, Cash and cash equivalents For purposes of the statement of cash flows, the University considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Funds invested through the State of South Carolina State Treasurer s Office are considered cash equivalents. Investments The University accounts for its investments at fair value in accordance with GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools. Changes in unrealized gains (losses) on the carrying value of investments are reported as a component of investment income in the statements of revenues, expenses and changes in net assets. (Continued) -12-

15 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued Accounts receivable Accounts receivable consists of tuition and fee charges to students and auxiliary enterprise services provided to students, faculty and staff. Accounts receivable also includes amounts due from the federal government, state and local governments, or private sources, in connection with reimbursement of allowable expenditures made pursuant to the University s grants and contracts. Accounts receivable are recorded net of estimated uncollectible amounts. Inventories Inventories, which consist of bookstore inventories for resale, are carried at the lower of cost or market. The cost of textbooks is reported on a weighted average basis while the cost of merchandise is reported on a first-in, first-out basis. Capital assets Capital assets are recorded at cost at the date of acquisition or fair market value at the date of donation in the case of gifts. The University follows capitalization guidelines established by the State of South Carolina. All land is capitalized, regardless of cost. Qualifying improvements that rest in or on the land itself are recorded as depreciable land improvements. Major additions and renovations and other improvements costing $100,000 or more that add to the usable space, prepare existing buildings for new uses, or extend the useful life of an existing building are capitalized. The University capitalizes movable personal property with a unit value in excess of $5,000 and a useful life in excess of one year and buildings and improvements and intangible assets costing in excess of $100,000. Routine repairs and maintenance and library materials, except individual items costing in excess of $5,000, are charged to operating expenses in the year in which the expense was incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally 15 to 50 years for buildings and improvements and land improvements and 2 to 25 years for machinery, equipment, and vehicles. A full year of depreciation is taken the year the asset is placed in service and no depreciation is taken in the year of disposition. Deferred revenues and deposits Deferred revenues include amounts received for tuition and fees and certain auxiliary activities prior to the end of the fiscal year but related to the subsequent accounting period. Deferred revenues also include amounts received from grant and contract sponsors that have not yet been earned. Deposits represent dormitory room deposits, security deposits for possible room damage and key loss, student fee refunds, and other miscellaneous deposits. Student deposits are recognized as revenue during the semester for which the fee is applicable and earned when the deposit is nonrefundable to the student under the forfeit terms of the agreement. Compensated absences Employee vacation pay expense is accrued at year-end for financial statement purposes. The liability and expense incurred are recorded at year-end as accrued compensated absences in the statement of net assets, and as a component of compensation and benefit expense in the statement of revenues, expenses, and changes in net assets. Generally all permanent full-time employees and certain part-time employees scheduled to work at least one-half of the University s workweek are entitled to accrue and carry forward at calendar year-end maximums of 180 days sick leave and of 45 days annual vacation leave, except that faculty members do not accrue annual leave. Upon termination of employment, employees are entitled to be paid for accumulated unused annual vacation leave up to the maximum, but are not entitled to any payment for unused sick leave. The compensated absences liability includes accrued annual leave and salary-related employee benefits. (Continued) -13-

16 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued Net assets The University s net assets are classified as follows: Invested in capital assets, net of related debt represents the University s total investment in capital assets, net of outstanding debt obligations related to those capital assets. To the extent debt has been incurred but not yet expended for capital assets, such amounts are not included as a component of invested in capital assets, net of related debt. Restricted net assets - expendable include resources in which the University is legally or contractually obligated to spend resources in accordance with restrictions imposed by external third parties. Restricted net assets - nonexpendable consist of endowment and similar type funds in which donors or other outside sources have stipulated, as a condition of the gift instrument, that the principal is to be maintained inviolate and in perpetuity, and invested for the purpose of producing present and future income, which may either be expended or added to principal. Unrestricted net assets represent resources derived from student tuition and fees, appropriations, and sales and services of educational departments and auxiliary enterprises. These resources are used for transactions relating to the educational and general operations of the University, and may be used at the discretion of the governing board to meet current expenses for any purpose. These resources also include auxiliary enterprises, which are substantially self-supporting activities that provide services for students, faculty and staff. The University s policy is to first apply restricted resources when an expense is incurred for purposes for which both restricted and unrestricted net assets are available. Income taxes The University, as a political subdivision of the State of South Carolina, is excluded from Federal income taxes under Section 115(1) of the Internal Revenue Code, as amended. Classification of revenues The University has classified its revenues as either operating or nonoperating revenues according to the following criteria: Operating revenues generally result from exchange transactions to provide goods or services related to the University s principal ongoing operations. These revenues include (1) student tuition and fees received in exchange for providing educational services, housing, and other related services to students; (2) fees received from organizations and individuals in exchange for miscellaneous goods and services provided by the University; (3) receipts for scholarships; and (4) grants and contracts that are essentially the same as contracts for services that finance programs the University would not otherwise undertake. Nonoperating revenues include activities that have the characteristics of nonexchange transactions. These revenues include gifts and contributions, appropriations, investment income, and any grants and contracts that are not classified as operating revenue or restricted by the grantor to be used exclusively for capital purposes. Sales and services of educational and other activities Revenues from sales and services of educational and other activities generally consist of amounts received from instructional, laboratory, research, and public service activities that incidentally create goods and services which may be sold to students, faculty, staff, and the general public. The University receives such revenues primarily from tournaments, student-related activities and workshops. (Continued) -14-

17 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued Auxiliary enterprises and internal service activities Auxiliary enterprise revenues primarily represent revenues generated by housing, food service and bookstore. Revenues of internal service and auxiliary enterprise activities and the related expenditures of University departments have been eliminated. Scholarship discounts and allowances Student tuition and fee revenues, and certain other revenues from students, are reported net of scholarship discounts and allowances in the statement of revenues, expenses, and changes in net assets. Scholarship discounts and allowances are the difference between the stated charge for goods and services provided by the University, and the amount that is paid by students and/or third parties making payments on the students behalf. Certain governmental grants, such as Pell grants, and other Federal, state or nongovernmental programs, are recorded as either operating or nonoperating revenues in the University s financial statements. To the extent that revenues from such programs are used to satisfy tuition and fees and other student charges, the University has recorded a scholarship discount and allowance. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses and affect disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. NOTE 2 - CASH AND CASH EQUIVALENTS AND OTHER DEPOSITS Generally, deposits and investments of the University are under the control of the State Treasurer who, by law, has sole authority for investing State funds. The following schedule reconciles deposits and investments within the footnotes to the statement of net assets amounts: Statement of net assets Cash and cash equivalents (current) $ 9,999,493 Cash and cash equivalents (non-current) 355,040 Restricted cash and cash equivalents (non-current) 195,518 Footnotes $ 10,550,051 Cash on hand $ 9,699 Deposits held by State Treasurer 10,532,068 Other deposits 8,284 $ 10,550,051 (Continued) -15-

18 NOTE 2 - CASH AND CASH EQUIVALENTS AND OTHER DEPOSITS, Continued Deposits Held by State Treasurer State law requires full collateralization of all State Treasurer bank balances. The State Treasurer must correct any deficiencies in collateral within seven days. At June 30, 2003, all State Treasurer bank balances were fully insured or collateralized with securities held by the State or by its agents in the State's name. With respect to investments in the State's internal cash management pool, all of the State Treasurer's investments are insured or registered or are investments for which the securities are held by the State or its agents in the State's name. Information pertaining to the reported amounts, fair values, and credit risk of the State Treasurer's investments is disclosed in the Comprehensive Annual Financial Report of the State of South Carolina. Other Deposits At June 30, 2003, the bank balance of the University s other deposits was $8,284. These funds were fully insured or collateralized by securities held by the University s agent in the University s name. Restricted cash and cash equivalents of $195,518 at June 30, 2003 represents cash balances associated with the Perkins Loan Program. NOTE 3 - ACCOUNTS RECEIVABLE Accounts receivable as of June 30, 2003, are summarized as follows: Receivables: Student accounts $ 212,426 Federal grants and contracts 173,132 State grants and contracts 5,000 Capital improvement bond proceeds 10,447 Related party 109,455 Other 44,463 Gross receivable 554,923 Less: Allowance for uncollectibles: Student accounts 43,864 Receivables, net $ 511,059 Allowances for losses for student accounts receivable are established based upon actual losses experienced in prior years and evaluations of the current account portfolio. NOTE 4 - RESTRICTED STUDENT LOANS RECEIVABLE Student loans made through the Federal Perkins Loan Program comprise substantially all of the loans receivable as of June 30, The Perkins Loan program provides various repayment options; students have the right to repay the loans over periods up to 10 years depending on the amount of the loan and loan cancellation privileges the student may exercise. As the University determines that loans are uncollectible, the loans are written off and assigned to the United States Department of Education. -16-

19 NOTE 5 - CAPITAL ASSETS Beginning Ending balance balance July 1, 2002 Increases Decreases June 30, 2003 Capital assets not being depreciated: Land and improvements $ 2,531,642 $ - $ - $ 2,531,642 Construction in-progress - 405, ,026 Art and historical collections 83, ,480 Total capital assets not being depreciated 2,615, ,026-3,020,148 Other capital assets: Land improvements 152, ,579 Buildings and improvements 50,246, ,287-50,464,904 Machinery, equipment, and other 1,847,875 75,450 30,290 1,893,035 Vehicles 278,340 62,297 6, ,217 Intangibles 392, , ,611 Total other capital assets at historical cost 52,918, ,910 36,710 53,400,346 Total capital assets 55,533, ,936 36,710 56,420,494 Less accumulated depreciation for: Land improvements 122,063 6, ,166 Buildings and improvements 18,098,237 1,304,154-19,402,391 Machinery, equipment, and other 1,268, ,660 30,290 1,425,155 Vehicles 177,612 45,727 6, ,919 Intangibles 392,735 32, ,310 Total accumulated depreciation 20,059,432 1,575,219 36,710 21,597,941 Capital assets, net $ 35,473,836 $ (651,283) $ - $ 34,822,553 The gain on disposal of assets was $3,995. There was no loss on disposal of assets. Interest charged to expense totaled $77,040 for the year ended June 30, No interest was capitalized. NOTE 6 - PENSION PLANS The Retirement Division of the State Budget and Control Board maintains four independent defined benefit plans and issues its own publicly available Comprehensive Annual Financial Report (CAFR) which includes financial statements and required supplementary information. A copy of the separately issued CAFR may be obtained by writing to the Retirement Division, 202 Arbor Lake Drive, Columbia, South Carolina Furthermore, the Division and the four pension plans are included in the CAFR of the State of South Carolina. Article X, Section 16, of the South Carolina Constitution requires that all State-operated retirement systems be funded on a sound actuarial basis. Title 9 of the South Carolina Code of Laws of 1976, as amended, prescribes requirements relating to membership, benefits, and employee/employer contributions for each pension plan. Employee and employer contribution rates for the South Carolina Retirement System and the Police Officers Retirement System are actuarially determined. Annual benefits, payable monthly for life, are based on length of service and on average final compensation. South Carolina Retirement System The majority of employees of the University are covered by a retirement plan through the South Carolina Retirement System (SCRS), a cost-sharing multiple-employer defined benefit pension plan administered by the Retirement Division, a public employee retirement system. Generally all State employees are required to participate in and contribute to the SCRS as a condition of employment unless exempted by law as provided in Section of the South Carolina Code of Laws. This plan provides retirement annuity benefits as well as disability, cost of living adjustment, death, and group-life insurance benefits to eligible employees and retirees. (Continued) -17-

20 NOTE 6 - PENSION PLANS, Continued Since July 1, 1988, employees participating in the SCRS have been required to contribute 6.0 percent of all compensation. Effective July 1, 2002, the employer contribution rate became percent which included a 3.15 percent surcharge to fund retiree health and dental insurance coverage. The University's actual contributions to the SCRS for the three most recent fiscal years ending June 30, 2003, 2002 and 2001 were $881,535, $835,646, and $848,533, respectively, and equaled the required contributions of 7.55 percent (excluding the surcharge) for each year. Also, the University paid employer group-life insurance contributions of $17,514 in the current fiscal year at the rate of.15 percent of compensation. Police Officers Retirement System The South Carolina Police Officers Retirement System (PORS) is a cost-sharing multiple-employer defined benefit public employee retirement plan administered by the Retirement Division. Generally all full-time employees whose principal duties are the preservation of public order or the protection or prevention and control of property destruction by fire are required to participate in and contribute to the System as a condition of employment. This plan provides annuity benefits as well as disability and group-life insurance benefits to eligible employees and retirees. In addition, participating employers in the PORS contribute to the accidental death fund which provides annuity benefits to beneficiaries of police officers and firemen killed in the actual performance of their duties. These benefits are independent of any other retirement benefits available to the beneficiary. Since July 1, 1988, employees participating in the PORS have been required to contribute 6.5 percent of all compensation. Effective July 1, 2001, the employer contribution rate became percent which, as for the SCRS, included the 3.15 percent surcharge. The University's actual contributions to the PORS for the years ending June 30, 2003, 2002 and 2001, were $35,606, $35,206 and $35,590, respectively, and equaled the required contributions of 10.3 percent (excluding the surcharge) for each year. Also, the University paid employer group-life insurance contributions of $691 and accidental death insurance contributions of $691 in the current fiscal year for PORS participants. The rate for each of these insurance benefits is.20 percent of compensation. Optional Retirement Program Certain State employees may elect to participate in the Optional Retirement Program (ORP), a defined contribution plan. The ORP was established in 1987 under Title 9, Chapter 17, of the South Carolina Code of Laws. The ORP provides retirement and death benefits through the purchase of individual fixed or variable annuity contracts whic h are issued to, and become the property of, the participants. The State assumes no liability for this plan other than for payment of contributions to designated insurance companies. ORP participation is limited to faculty and administrative staff of the State's higher education institutions who meet all eligibility requirements for membership in the SCRS. To elect participation in the ORP, eligible employees must irrevocably waive SCRS membership within their first ninety days of employment. Under State law, contributions to the ORP are required at the same rates as for the SCRS, 7.55 percent plus the retiree surcharge of 3.15 percent from the employer in fiscal year Certain of the University's employees have elected to be covered under optional retirement plans. For the fiscal year, total contribution requirements to the ORP were $198,260 (excluding the surcharge) from the University as employer and $157,561 from its employees as plan members. All amounts were remitted to the Retirement Division of the State Budget and Control Board for distribution to the respective annuity policy providers. The obligation for payment of benefits resides with the insurance companies. (Continued) -18-

21 NOTE 6 - PENSION PLANS, Continued Deferred Compensation Plans Several optional deferred compensation plans are available to State employees and employers of its political subdivisions. Certain employees of the University have elected to participate. The multiple-employer plans, created under Internal Revenue Code Sections 457, 401(k), and 403(b), are administered by third parties and are not included in the Comprehensive Annual Financial Report of the State of South Carolina. Compensation deferred under the plans is placed in trust for the contributing employee. The State has no liability for losses under the plans. Employees may withdraw the current value of their contributions when they terminate State employment. Employees may also withdraw contributions prior to termination if they meet requirements specified by the applicable plan. Teacher and Employee Retention Incentive Effective January 1, 2001, Section of the South Carolina Code of Laws allows employees eligible for service retirement to participate in the Teacher and Employee Retention Incentive (TERI) Program. TERI participants may retire and begin accumulating retirement benefits on a deferred basis without terminating employment for up to five years. Upon termination of employment or at the end of the TERI period, whichever is earlier, participants will begin receiving monthly service retirement benefits which will include any cost of living adjustments granted during the TERI period. Because participants are considered retired during the TERI period, they do not make SCRS contributions, do not earn service credit, and are ineligible to receive group life insurance benefits or disability retirement benefits. NOTE 7 - POST EMPLOYMENT AND OTHER EMPLOYEE BENEFITS In accordance with the South Carolina Code of Laws and the annual Appropriation Act, the State of South Carolina provides certain health care, dental, and life insurance benefits to certain active and retired State employees and certain surviving dependents of retirees. All permanent full-time and certain permanent part-time employees of the University are eligible to receive these benefits. The State provides post employment health and dental benefits to employees who retire from State service or who terminated with at least 20 years of State service who meet one or more of the eligibility requirements, such as age, length of service, and hire date. Generally those who retire must have at least 10 years of retirement service credit to qualify for these State-funded benefits. Benefits are effective at date of retirement when the employee is eligible for retirement benefits. These benefits are provided through annual appropriations by the General Assembly to the University for its active employees and to the State Budget and Control Board for all participating State retirees except the portions funded through the pension surcharge and provided from other applicable fund sources of the University for its active employees who are not funded by State General Fund appropriations. The State finances health and dental plan benefits on a pay-as-you-go basis. Currently, approximately 21,400 State retirees meet these eligibility requirements. The University recorded compensation and benefit expenses for these insurance benefits for active employees in the amount of $1,159,929 for the year ended June 30, The University paid $461,410 applicable to the 3.15 percent surcharge included with the employer contributions for retirement benefits. These amounts were remitted to the South Carolina Retirement Systems for distribution to the Office of Insurance Services for retiree health and dental insurance benefits. Information regarding the cost of insurance benefits applicable to University retirees is not available. By State law, the University has no liability for retirement benefits. Accordingly, the cost of providing these benefits for retirees is not included in the accompanying financial statements. In addition, the State General Assembly periodically directs the Retirement Systems to pay supplemental (cost of living) increases to retirees. Such increases are primarily funded from Systems' earnings; however, a portion of the required amount is appropriated from the State General Fund annually for the SCRS and PORS benefits. -19-

22 NOTE 8 - LITIGATION, CONTINGENCIES AND PROJECT COMMITMENTS The University participates in certain Federal grant programs. These programs are subject to financial and compliance audits by the grantor or its representative. Such audits could lead to requests for reimbursement to the grantor agency for expenditures disallowed under terms of the grant. Management believes disallowances, if any, will not be material. The State has issued capital improvement bonds to fund improvements and expansion of state facilities. The University is not obligated to repay these funds to the State. Authorized funds can be requested as needed once State authorities have given approval to begin specific projects and project expenditures have been incurred. The University has $3,548,371 of authorized state capital improvement bond proceeds available to draw at June 30, At June 30, 2003, the University was committed for the purchase of institutional software at a cost of approximately $2,600,000. Installation will be completed in phases through The University is a party to various litigation as a defendant, arising from its normal operations. Management does not anticipate material losses in connection with these claims. NOTE 9 - LEASE OBLIGATIONS Commitments for operating leases with external parties having remaining noncancelable terms in excess of one year as of June 30, 2003 were as follows: Year ended June 30, Equipment Real property 2004 $ 13,147 $ 275, , , Total minimum lease payments $ 14,265 $ 825,043 Operating Leases The University s noncancelable operating leases provide for renewal options for periods from one to three years at their fair rental value at the time of renewal. In the normal course of business, operating leases are generally renewed or replaced by other leases and are generally payable on a monthly basis. Total rental payments for fiscal year 2003 were $304,098, including regular payments of $266,298 and contingent payments, on a per copy basis, of $37,800. The University entered into an operating lease with the County of Greenwood for property to be used by the University s athletic programs. The lease has an annual rental rate of one dollar and expires June 30, The lessor may continue to use the property rent-free for three months each year. The University renewed and extended a real property operating lease agreement through the Office of Property Management for Greenwood High Apartments for the housing of University students. The annual lease rate is $275,000. The agreement expires July 31,